India’s foreign exchange reserves reached an all-time high of US$ 645.6 billion as of March 29, 2024, with Reserve Bank of India Governor Shaktikanta Das emphasising that they act as a buffer against future risks.

“Consciously, over the last 4-5 years, we have been building up reserves, as the market moves, depending on the prevailing market situation. That endeavor continues because it acts as a buffer against future risks especially in situation when the cycle turns and if there are significant outward flows of dollars. It is by way of a buffer that we are building up reserves. This whole approach adds to the strength of the national balance sheet,” Das said

India’s holds the world’s fourth largest forex reserves after China, Switzerland, and Japan.

Healthy growth

Das noted that during the first three quarters of 2023-24, India’s current account deficit (CAD) narrowed significantly on account of a moderation in merchandise trade deficit coupled with robust growth in services exports and strong remittances. India’s merchandise and services exports have grown at a healthy pace in Q4:2023-24.

CAD occurs when the value of imports of goods and services is greater than the value of exports of goods and services.

During April-December 2023-24, the CAD was placed at $ 31.0 billion (1.2 per cent of GDP) as compared to 2.6 per cent during same period of 2022-23.

The Governor said India continues to be the largest recipient of remittances in the world. The cost of receiving remittances is gradually coming down.

India’s cost of receiving $200 remittances stood at 4.9 per cent in Q3:2023, significantly lower than 9.6 per cent in Q1:2013 and also vis-a-vis the global average of 6.2 per cent. However, it is higher than the SDG target of 3 per cent to be achieved by 2030, which requires cooperation among countries.

Overall, the CAD for 2024-25 is expected to remain at a level that is both viable and eminently manageable, Das said.